Question
(The Bitcoin Economy) In the year 2015, Bitcoin was used to purchase $3.5 billion dollars in final goods and services in 2020 dollars (mostly illegally).
(The Bitcoin Economy) In the year 2015, Bitcoin was used to purchase $3.5 billion dollars in final goods and services in 2020 dollars (mostly illegally). On December 16, 2020, $350 billion dollars of Bitcoin have been used to purchase final goods and services during the year.
a. What is the yearly growth rate of the Bitcoin economy in the 2015-2020 period?
b. Assuming that the supply of Bitcoin hasn't changed in the 2015-2020 period, and that the frequency at which a Bitcoin token is used in a transaction has increased yearly by 42%, what is the rate of inflation in the Bitcoin economy? Please carefully explain the economic principle behind your calculations
c. A data analyst at Coinbase noticed a positive relationship between the growth rate of the Bitcoin economy and the mining of Bitcoin around the world. Namely, the growth rate of the Bitcoin economy and the change in mining equipment utilitization rate M satisfy: ln(Y ) = 12 + 8M. In the context of our class material, what does this relationship remind you of? Using your answer in Part a., what is the yearly change in mining equipment utilization rate?
d. A new startup decides to create Bitcoin Central Bank, the BCCB. The BCCB decides to follow a rule-based policy and targets the nominal interest rate according to the rule i = r + + 0.5( ) + 0.5(y y) where r = 2%, = 2%, y = 2% and y = ln(Y ). Using your answers in the previous questions what is the target nominal interest rate of the BCCB?
e. In the context of our class material, will the nominal interest found in Part d be conducive to the development of a credit market in the Bitcoin economy? Please carefully explain the analogies behind your reasoning.
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